Businesses open their doors every single day, while others close theirs. Whether the business is set up to be fully online or a combination of brick-and-mortar and online, there are specific reasons why most small business startups fail.
Startups are difficult because they are not proven. This makes it hard to get the right funding and the right tools in place for success. However, understanding why businesses fail can help you succeed with yours.
Small business startups fail for a variety of reasons. Many will make it to the gate and fail just a few months after opening. However, others it could take a few years. Here are a few of the major reasons small business startups fail.
Poor Money Management
Also known as the “I own it” complex, many business owners get an elitist attitude when they are the one in charge and the one that owns the business. This often leads to poor money management and bad decision making.
For example, a business owner may decide to hire and pay five in-house receptionist, which could cost as much as $200,000 per year, while they could have hired a team of virtual receptionist for less than $30,000 per year. They might do this so that they can have more employees and because they didn’t take the time to look into the decision they were making.
Many other areas of the budget call for great money management, which many startups don’t have. It’s best to have somebody specifically skilled in finances in charge of the money. They can set the budget and help you work within it to get what the business needs.
Poor Business Model
Just as business owners may fail when it comes to managing their money, they may also shut their doors because they started with a poor business model. You cannot just build a website or open the doors to a store and expect people to magically find your business. You have to have a business model with a solid marketing plan or you’re destined for failure.
Sometimes, businesses have a great plan with an excellent marketing strategy, but they fail to implement it. This could be linked to the poor money management and making decision that cost them more than necessary.
One of the ways you can avoid spending your marketing budget on things that don’t drive customer to your business is by outsourcing. Instead of hiring full time employees, such as an accountant, writers, designers and receptionist, you can outsource these tasks for a very low price to freelance workers or services.
Horrible Customer Retention
So many businesses open just to shut their doors because they don’t retain their customers. One of the best examples of this is a restaurant that starts to cut costs on food to make ends meet. The customers that came in early on will now come back only find the food is lower quality, which will send them looking for a new place to eat.
It cost money to acquire new customers and you need to retain them. It’s far less expensive to retain customer than to acquire them. Make sure you are doing everything you can to retain your current customers or you may find your business shutting the doors forever.
When a business budgets correctly and has the money to market, they may still make mistakes. Sometimes, instead of testing different types of marketing, different ads and different ways of reaching their target audience, they put all their marketing money into one or two marketing strategies.
This is a gamble and without proper testing, it’s possible to spend thousands of dollars with very little or no return. It’s better to test the waters first before investing everything you have into a marketing strategy.
Bad Hiring Decisions
Hiring the wrong people can cost you quite a bit of money, as well. You may hire somebody that doesn’t work as hard as you want, isn’t as dedicated or even steals from you. This isn’t good and can have your business in trouble fast.
Instead of hiring only employees, you should consider outsourcing. When you outsource tasks, such as phone customer service, order processing and appointment scheduling, not only do you save money, but you will also be trusting an expert with these tasks. With the right virtual receptionist service, you can actually cover all of these tasks for a very low cost.
There are several reasons why small business startups fail, but these are the main things failed businesses have in common. Don’t be one of the many that shut their doors in the first two years.